Karta's transfer voidable not void ab initio; trust effective absent coparceners' impeachment, so dividends not presently assessable.

Whether a karta's settlement of joint family property by trust or gift divests the Hindu undivided family was decided on the basis that such managerial alienation is generally voidable at the instance of affected coparceners but not void ab initio; absent allegation or successful impeachment by coparceners and where transfer served minors' benefit, the trust operated to divest the family. Consequentially, dividend income from shares settled under the trust was held not assessable to the family on the material before the Court, subject to change if coparceners later impeach the transfer.

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Issues: (i) Whether the assets comprised in the trust deed dated 3rd September, 1951 no longer belonged to the assessee family; (ii) Whether the dividend income from the shares purported to be settled on trust under the deed dated 3rd September, 1951 is assessable in the hands of the assessee family.

Issue (i): Whether the assets comprised in the trust deed dated 3rd September, 1951 no longer belonged to the assessee family.

Analysis: The Court examined whether the manager (karta) of a joint Hindu family could effect a valid transfer by gift or trust of family property without consent of all coparceners. The Court considered authorities establishing that a manager's alienation may be voidable at the instance of affected coparceners but is not necessarily void ab initio, and noted that the transfer here was for the education of beneficiaries (minors) and made with the consent of the only other adult coparcener. The Court also observed absence of any charge that the transaction was sham and lack of material showing that the gift should be set aside.

Conclusion: The Court answered in favour of the assessee and held that the assets as settled by the trust did not, on the material before the Court, continue to belong to the assessee family.

Issue (ii): Whether the dividend income from the shares purported to be settled on trust is assessable in the hands of the assessee family.

Analysis: Having held that the transfer was not void ab initio but at the worst voidable and that the transaction appeared to be for the benefit of the minors, the Court reviewed the income-tax authority's reasons (including reliance on section 16(3) and on beneficiaries to be born) and found them insufficient to bring the dividend income into the family's taxable income on the record then available. The Court noted that if the gift were impeached by coparceners the position could change, but no such impeachment had occurred.

Conclusion: The Court concluded in favour of the assessee and held that the dividend income was not assessable in the hands of the assessee family on the material before the Court.

Final Conclusion: Both questions referred were answered against the department; the transfer under the trust stands effective for the purposes considered and the dividend income is not assessable to the Hindu undivided family on the record before the Court.

Ratio Decidendi: A gift or trust executed by the manager (karta) of a joint Hindu family in respect of family property is, in general, voidable at the instance of the affected coparceners and not void ab initio, and absent successful impeachment by those coparceners the transfer can operate to divest the family of the property and its income.

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